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Starbucks (SBUX) Down 32% in Past 6 Months: Is Revival Likely?
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The past six months has been tough for Starbucks Corporation (SBUX - Free Report) . The company’s shares have fallen 31.7% in the past six months, compared with the industry’s decline of 18%. The dismal performance in China and high costs are hurting its performance.
In the past 60 days, the company’s earnings for 2022 and 2023 have witnessed downward revisions of 42 cents and 41 cents to $2.92 and $3.52 per share, respectively. Earnings in 2022 is likely to witness a decline of 9.9%.
Factors Hurting Performance
The Omicron variant has negatively impacted the company’s performance in China. A city like Shanghai, which is four times the size of New York City, is completely locked down. Other major cities have also been witnessing new COVID outbreaks, which have been hurting the company’s performance. Due to uncertainty in China, the company is unable to predict its performance in the country in the back half of the year. During second-quarter 2022, net revenues in China decreased 14%, while sales comp declined 20% compared with the last year after adjusting for the VAT subsidy. Due to the Shanghai lockdown and resurgence of the virus in other cities, the company expects its China performance to worsen in third-quarter 2022. At the end of second-quarter 2022, the company noted that nearly one-third of its stores in China remain temporarily closed or are offering mobile ordering channels only.
Given the ongoing uncertainty surrounding China, increasing inflation and significant planned investments, Starbucks management has suspended guidance for the third quarter and the fourth quarter for the time being. Starbucks believes its performance will be under pressure for the balance of the year, especially in the third quarter. From the capital allocation perspective, although the company has suspended share repurchases for the balance of this fiscal year, it has returned more than $5 billion through share repurchases and quarterly dividends during the first half of fiscal 2022. SBUX expects share repurchases made earlier in the year to contribute at least 1% to fiscal 2022 EPS growth. The company intends to provide a comprehensive update on its business outlook for fiscal 2023 and beyond at its Investor Day in September.
The company’s margin in second-quarter 2022 was negatively impacted by inflationary pressures, and increased investments in store partner wages and benefits. Reduced traffic in China added to woes. However, this was partially offset by higher pricing in North America. On a non-GAAP basis, the operating margin during the fiscal second quarter came in at 13%, down from 16% reported in the prior-year quarter.
The company’s earnings in fiscal 2022 are likely to be impacted by strategic investments and cost inflation. The expiration of government subsidies in Asia and the transition of Starbucks Korea to the licensee are likely to hurt the company’s margin in fiscal 2022.
MarineMax sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 32.8%, on average. Shares of the company have declined 14.4% in the past year.
The Zacks Consensus Estimate for MarineMax’s 2022 sales and EPS suggests growth of 16% and 21.5%, respectively, from the year-ago period’s levels.
BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 17.5% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. ARCO has a long-term earnings growth of 34.4%. Shares of the company have increased 16.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 16.6% and 83.3%, respectively, from the year-ago period’s levels.
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Starbucks (SBUX) Down 32% in Past 6 Months: Is Revival Likely?
The past six months has been tough for Starbucks Corporation (SBUX - Free Report) . The company’s shares have fallen 31.7% in the past six months, compared with the industry’s decline of 18%. The dismal performance in China and high costs are hurting its performance.
In the past 60 days, the company’s earnings for 2022 and 2023 have witnessed downward revisions of 42 cents and 41 cents to $2.92 and $3.52 per share, respectively. Earnings in 2022 is likely to witness a decline of 9.9%.
Factors Hurting Performance
The Omicron variant has negatively impacted the company’s performance in China. A city like Shanghai, which is four times the size of New York City, is completely locked down. Other major cities have also been witnessing new COVID outbreaks, which have been hurting the company’s performance. Due to uncertainty in China, the company is unable to predict its performance in the country in the back half of the year. During second-quarter 2022, net revenues in China decreased 14%, while sales comp declined 20% compared with the last year after adjusting for the VAT subsidy. Due to the Shanghai lockdown and resurgence of the virus in other cities, the company expects its China performance to worsen in third-quarter 2022. At the end of second-quarter 2022, the company noted that nearly one-third of its stores in China remain temporarily closed or are offering mobile ordering channels only.
Given the ongoing uncertainty surrounding China, increasing inflation and significant planned investments, Starbucks management has suspended guidance for the third quarter and the fourth quarter for the time being. Starbucks believes its performance will be under pressure for the balance of the year, especially in the third quarter. From the capital allocation perspective, although the company has suspended share repurchases for the balance of this fiscal year, it has returned more than $5 billion through share repurchases and quarterly dividends during the first half of fiscal 2022. SBUX expects share repurchases made earlier in the year to contribute at least 1% to fiscal 2022 EPS growth. The company intends to provide a comprehensive update on its business outlook for fiscal 2023 and beyond at its Investor Day in September.
The company’s margin in second-quarter 2022 was negatively impacted by inflationary pressures, and increased investments in store partner wages and benefits. Reduced traffic in China added to woes. However, this was partially offset by higher pricing in North America. On a non-GAAP basis, the operating margin during the fiscal second quarter came in at 13%, down from 16% reported in the prior-year quarter.
The company’s earnings in fiscal 2022 are likely to be impacted by strategic investments and cost inflation. The expiration of government subsidies in Asia and the transition of Starbucks Korea to the licensee are likely to hurt the company’s margin in fiscal 2022.
Starbucks carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are MarineMax, Inc. (HZO - Free Report) , BBQ Holdings, Inc. and Arcos Dorados Holdings Inc. (ARCO - Free Report) .
MarineMax sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 32.8%, on average. Shares of the company have declined 14.4% in the past year.
The Zacks Consensus Estimate for MarineMax’s 2022 sales and EPS suggests growth of 16% and 21.5%, respectively, from the year-ago period’s levels.
BBQ Holdings carries a Zacks Rank #2 (Buy). BBQ Holdings has a long-term earnings growth of 14%. Shares of the company have decreased 17.5% in the past year.
The Zacks Consensus Estimate for BBQ Holdings’ 2022 sales and EPS suggests growth of 46.1% and 67.6%, respectively, from the year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. ARCO has a long-term earnings growth of 34.4%. Shares of the company have increased 16.3% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 16.6% and 83.3%, respectively, from the year-ago period’s levels.